Luk Fook – a Growth Story with Further Re-Rating Potentials

Recommendation BUY Date: 5 November 2010 HSI: 24,535. 63 Share Price: HK$20. 55 Target Price: HK$28. 10 Potential Return: +37% LUK FOOK HOLDINGS (590 HK) A Growth Story with Further Re-rating Potentials High growth stock at ex-growth valuation – Despite its 98% share price rally since its better-than-expected FY10 results reported in July 2010, Luk Fook remains undervalued in our view, as it is still only trading at 13. 9x FY3/11 earnings with a FY10-13 EPS CAGR of 24. 7%. At our target price of HK$28. 10, which implies a potential upside of 37%, the counter would still be trading on 19. x FY3/11 PE, which we believe is attainable, as contemporary HK retailers expanding rapidly in China are trading at well over 20x. An overlooked China consumer play – Sasa (178 HK), I. T (999 HK) and Emperor Watches (887 HK), all being HK based retailers expanding rapidly in China, are trading at an average 25. 7x PE for the current year, with similar growth outlook as Luk Fook. Another luxury play, Hengdeli (3389 HK), a leading retailer of international brand watches in China, is trading at 30. 5x PE for the current year with a 3-year EPS CAGR of 29. %. Compared with such peers, we believe Luk Fook’s growth potential is under-appreciated and further re-rating exist. Licensing model helps rapid and low-cost China expansion – Luk Fook’s expansion in China through the licensing model allows much faster expansion with minimal capex requirements. In addition, this licensing model makes good use of Luk Fook’s “know-how” and its licensees’ “know-who” in 2nd and 3rd tier cities, thus allowing synergies. The company targets to add ~100 outlets in China every year, implying ~20% YoY growth.

Growing number of mainland tourists and their wealth are the strong tailwind to luxury retail sales in HK – For the first nine months in 2010, visitor arrivals to HK rose 23. 7% YoY to 26. 18m, of which 63. 0% are mainland tourists. During the same period, retail sales of jewellery, watches & clocks, and valuable gifts rose 37% YoY, thanks to the increasing wealth of mainland tourists visiting HK and their desires to buy luxury goods. Luk Fook, being an established HK brand trusted by mainland customers, is well poised to benefit from such ongoing trend.

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COMPANY BACKGROUND: Luk Fook is a leading jewellery retailer in HK and China. The company opened its first retail outlet in HK in 1991, and became listed in 1997. Luk Fook engages in the sourcing, designing, wholesaling and retailing of a variety of gold jewellery, gold ornaments, gem-set jewellery, jadeite, gemstones and other accessory items. The company currently has over 600 retail outlets in HK (37 self-operated stores), Macau (6 self-operated stores), Canada & US (3 self-operated stores) and China (~560 outlets, which comprises ~40 self-operated stores and ~520 licensee stores).

EARNINGS DATA Year to 31 March Net profit HK & China Retail SHARE INFORMATION Ticker 590 HK Market cap HK$10,121m Issued shares 492. 5 m Ent value HK$10,148m Net debt to equity 0. 01x 3-year EPS CAGR (FY10-13) 24. 7% PEG 0. 56x BVPS HK$3. 38 Price/BVPS 6. 1x 6-mth avg daily turnover HK$18. 5m Estimated free float 41. 3% ROE 32. 0% ROA 17. 4% 12-mth high/low HK$21. 00/4. 46 Major shareholder Mr. Wong Wai-sheung – 51. 8% Exchange rate RMB1 = HK$1. 16 SHARE PRICE CHART HK$ 22. 0 20. 0 18. 0 16. 0 14. 0 12. 0 10. 0 8. 0 6. 0 4. 0 2. 0 0. 0 m shares 10 5 0 Nov Jan Mar May Jul Sep Nov Luk Fook HSI (rebased)

Growth EPS HK$m YoY% YoY% HK$ 2010A 531. 6 1. 079 +81. 3 +81. 3 2011E 729 +37. 1 +37. 1 2012E 874 Growth 1. 48 +20. 0 +20. 0 2013E 1,030 1. 78 +17. 8 +17. 8 2. 09 Source: Bloomberg, South China Research 1 mth 3 mths 6 mths 12 mths Share price chg +17. 8% +59. 8% +130. 4% +339. 1% Relative to HSI +8. 6% +40. 4% +95. 0% +286. 8% Consensus EPS DPS PE EV/EBITDA Yield EARNINGS FORECAST Year to 31 March Turnover EBITDA Depreciation & amortization EBIT Net finance expenses Associate Profit before tax Tax Minority interests Net profit HK$ HK$ x x % N/A 0. 43 19. 0 14. 9 2. 4 1. 32 0. 59 13. 10. 8 3. 3 1. 59 0. 71 11. 6 9. 0 4. 0 1. 92 0. 84 9. 8 7. 7 4. 7 2009A HK$m 3,959. 2 372. 8 (36. 4) –—–336. 4 (3. 6) 1. 2 –—–334. 1 (37. 8) (3. 1) –—–293. 2 ==== 2010A HK$m 5,386. 4 678. 9 (43. 8) –—–635. 1 (3. 2) 2. 3 –—–634. 3 (97. 5) (5. 1) –—–531. 6 ==== 2011E HK$m 7,025 944 (73) –—–871 (4. 7) 3 –—–869 (134) (7) –—–729 ==== 2012E HK$m 8,103 1,123 (84) –—–1,039 – 4 –—–1,043 (160) (8) –—–874 ==== 2013E HK$m 9,243 1,321 (97) –—–1,224 – 5 –—–1,228. 6 (189) (10) –—–1,030 ==== Analyst : Michael Tam, CFA : (852) 2820 6322 : michael. [email protected] com Important: please refer to our disclosures and disclaimers at the end of this report Note: All prices in this report are based on the 4 November 2010 close LUK FOOK HOLDINGS (590 HK) A Growth Story with Further Re-rating Potentials Record visitor arrivals from China and their rising affluence being the strong tailwind – Following the relaxation of the residence permit policies for temporary residents of the Guangdong Province in December 2009, the number of mainland tourists visiting HK under the individual travel scheme has been increasing.

For the first nine months in 2010, total tourist arrivals to HK rose 23. 7% YoY to 26. 18m, of which 63. 0% were mainland tourists. Such uptrend is expected to continue, although the growth rate may slow. Mainland tourists like to purchase gold and jewellery products in HK, because they trust the products in HK to be “genuine”. In addition to customer confidence, mainland customers are also eager to buy gold and jewellery products in HK due to the lower price in HK relative to the mainland, as China levies a 5% sales tax on gold products and a 10% sales tax on other non-gold jewellery products.

According to the management of Luk Fook, mainland visitors accounted for 50-60% of its retail sales in HK and ~80% of its retail sales in Macau between April and August 2010. The rising number of mainland tourists visiting HK and Macau and their increasing wealth have become the strong tailwind for leading HK jewellery retailers such as Luk Fook. TOTAL VISITOR ARRIVALS IN HK Arrivals (m) 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 YoY 2009 9M09 9M10 YoY 50% 40% 30% 20% 10% 0% -10% Total visitor arrivals in HK Source: CEIC, South China Research THE PROPORTION OF MAINLAND VISITORS TO TOTAL 0% 60% 50% 40% 30% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9M10 Source: CEIC, South China Research Important: please refer to our disclosures and disclaimers at the end of this report. -2- LUK FOOK HOLDINGS (590 HK) HK RETAIL SALES – JEWELLERY, WATCHES & CLOCKS, AND VALUABLE GIFTS HK$bn 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9M09 9M10 YoY YoY 40% 30% 20% 10% 0% -10% Value of HK retail sales – Jewellery, watches and clocks, and valuable gifts Source: CEIC, South China Research CHINA RETAIL SALES – GOLD, SILVER AND JEWELLERY

RMBbn 100 90 80 70 60 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9M09 9M10 Value of China retail sales – Gold, silver and jewellery Source: CEIC, South China Research YoY 60% 50% 40% 30% 20% 10% 0% -10% YoY Differentiation by brand building efforts, product quality and jewellery authentication service – As a beneficiary of the growing number of mainland tourists and their wealth, Luk Fook has also been gaining market share in the local gold and jewellery retailer market by virtue of its successfully proven brand building and marketing strategies.

These brand building and marketing successes include creating and projecting a sophisticated and contemporary boutique image for its shops, opening new flagship stores in Tsim Sha Tsui, advertising in various mass media including product placement in TV programmes, sponsoring jewellery in beauty contests, appointing celebrities as its spokespersons in China, creating the slogans “Love is Beauty” for the HK market and “Love Forever” for the mainland market.

In addition to the enhanced brand image, Luk Fook’s other competitive edges include its award-winning and stylish jewellery designs, jewellery authentication service provided by its subsidiary “China Gems Laboratory”, as well as customer service. Rising market share – For FY3/10, the retail sales of Luk Fook in HK & Macau increased 31% YoY, higher than the 14% and 2% growth achieved by King Fook (0280 HK) and Tse Sui Luen (0417 HK) during the same period. Chow Sang Sang (0116 HK) recorded roughly flat sales in its HK & Macau businesses for FY12/09.

While these figures may not be perfectly comparable due to the difference in segmental reporting by each company, they do implicitly indicate Luk Fook’s market share gain in the HK market. Important: please refer to our disclosures and disclaimers at the end of this report. -3- LUK FOOK HOLDINGS (590 HK) China accounts for ~40% of profit – The profitability of Luk Fook’s businesses in China is often under-estimated. For FY3/10, the “retailing in PRC” segment accounted for 5. 4% of total turnover and 5. 8% of total segmental profit.

However, Luk Fook derives profit in China mainly through its licensee outlets. Including the “wholesaling” and “licensing” segments, together with the “retailing in PRC” segment, mainland businesses actually accounted for ~40% of total profit from all operating segments. Main business model in China: licensing – While the company has been setting up self-operated stores in certain large cities in China for brand building, it also derives mainland business income from its licensee stores through wholesaling, royalty income and consultancy fee.

Such business model ensures steady profits may be derived from China, as Luk Fook charges licensees based on turnover. INCOME SOURCES FROM LICENSEE OUTLETS IN CHINA 1. Wholesale to licensees 2. Royalty income Luk Fook has a jewellery processing plant in Panyu, Guangdong with a site area of >350,000 sq. ft. The company wholesales its own products to licensees, with payment terms being cash on delivery. Besides purchasing from Luk Fook, licensees also procure from other manufacturers. In that case, Luk Fook inspects all licensees’ purchases for quality assurance, and charges 3-12% of licensees’ purchase amount.

This includes a one-off joining fee of RMB100,000/outlet, project fee, training fee and other fees. 3. Consultancy fee Source: Company, South China Research Expansion in China via licensing allows rapid expansion with minimal capex – Luk Fook’s expansion strategy via the licensing model allows much faster expansion retail network with minimal capex requirements, and without gearing up its balance sheet or placing shares. In addition, this licensing model makes good use of Luk Fook’s “know-how” and the licensees’ “know-who” in 2nd and 3rd tier cities in China, thus creating synergies.

Management expects the company to add ~100 stores in FY3/11, and targets to add the same number of stores/year over the next few years. In fact, in China, HK jewellery brands are more popular than other mainland brands because of customers’ confidence in HK’s brands. STORE NETWORK EXPANSION IN CHINA As at the end of Licensee shops YoY Self-operated shops YoY Source: Company, South China Research FY05 145 2 FY06 180 2 FY07 270 3 FY08 340 11 FY09 400 19 FY10 483 36 +24% +50% +26% +18% +21% +89% – +50% +267% +73% Excellent track record of expansion execution – Mr.

Wong Wai-sheung, the founder and chief executive of Luk Fook, led the group from having only one retail outlet in HK back in 1991 to over 600 retail outlets currently throughout HK, Macau and China. Such excellent record of expansion execution reinforces our confidence in their future expansion plan, which will focus on 2nd and 3rd tier cities in China. The expansion plan in China is so far on track and we believe Luk Fook’s retail outlets will continue to increase, as the China market is far from saturation, especially in 2nd and 3rd tier cities.

Beneficiary of rising gold prices – Unlike other consumer plays such as F&B and apparel companies, rises in raw material prices will not hurt the gross margin of gold retailers, as they typically mark up the selling prices of their products with reference to international gold prices. For other gem-set products, their gross margins are actually higher, but with lower visibility, as gem-set jewellery are not homogeneous in nature and their markets are not transparent to the public. In FY3/10, gem-set jewellery made up 56% of Luk Fook’s sales in HK and Macau, while gold/platinum jewellery made up the remaining 44%.

In China, however, customers have a stronger preference for gold/platinum jewellery, which accounted for 79% of Luk Fook’s China sales in FY3/10. Overall, gold products and gemstone jewellery products contributed 53% and 47% of group sales, respectively. Looking ahead, Luk Fook should benefit from rising gold prices, as the company typically keeps a 3-month inventory of gold and inventory cost is determined on a first-in-first-out basis. In addition to inventory costing, higher gold prices will also drive higher revenue.

Gold price has a double-edge effect on gold demand – on one hand, higher gold price may decrease demand, but on the other, it may spur higher demand due to more optimistic gold price expectations. Important: please refer to our disclosures and disclaimers at the end of this report. -4- LUK FOOK HOLDINGS (590 HK) RETAIL SALES MIX* (FY3/10): HK, MACAU & OVERSEAS SELF-OPERATED STORES Gem-set Jewellery 56% Gold/Platinum Jewellery 44% RETAIL SALES MIX* (FY3/09): HK, MACAU & OVERSEAS SELF-OPERATED STORES Gold/Platinum Jewellery 42% Gem-set Jewellery 58% Source: Company

Source: Company RETAIL SALES MIX* (FY3/10): CHINA SELF-OPERATED STORES Gold/Platinum Jewellery 79% Gem-set Jewellery 21% RETAIL SALES MIX* (FY3/09): CHINA SELF-OPERATED STORES Gold/Platinum Jewellery 76% Gem-set Jewellery 24% Source: Company Source: Company * After deducting sales of scrap gold, platinum and gold bullion Strong balance sheet and free cash flow – As at 31 March 2010, cash on hand of the group totalled HK$287m while total bank borrowings amounted to HK$314m (mainly a mortgage loan for acquiring the new headquarters back in June 2009).

Capex amounted to HK$315m in FY3/10 (HK$30m in FY3/09) as the company invested ~HK$100m to set up a large-scale jewellery processing plant in Panyu, Guangdong that will increase production capacity by three times compared to the old factory, as well as acquiring an 18-storey commercial building in Jordan District of HK for its new headquarters, which is expected to commence operation in March 2011 and save rental cost by ~HK$10m a year. With regard to future capex, management guides ~HK$100m for FY11. Beyond FY11, we expect Luk Fook’s capex to stay low, given its business model.

While investing cash flow will remain low, operating cash flow will stay strong thanks to the cash-on-delivery payment terms for wholesaling to licensees, and also the fact that it is in the retail business. Larger market cap and higher liquidity have rendered the counter more investable by institutional investors – Luk Fook’s market cap and liquidity have significantly improved after its FY10 results announcement on 20 July 2010. MARKET CAP AND TRADING VOLUME 2008 Average market cap (HK$m) Average daily value traded (HK$m) Source: Bloomberg 2009 1,693 2. 3 1 Jan – 20 Jul 2010 3,983 5. 9 21 Jul – 4 Nov 2010 7,786 27. 1,958 3. 3 Important: please refer to our disclosures and disclaimers at the end of this report. -5- LUK FOOK HOLDINGS (590 HK) Peers are trading at higher PEs – The closest comparable peer of Luk Fook would be Chow Sang Sang (0116 HK), but no earnings forecast is available. However, we note that Luk Fook’s historical PE of 19. 0x (FY3/10) is lower than Chow Sang Sang’s 21. 6x (FY12/09). Sasa (0178 HK), I. T (0999 HK) and Emperor Watches (0887 HK), all being HK based retailers expanding rapidly in China, are trading at an average of 25. 7x PE for the current year, with similar growth outlooks as Luk Fook.

Another luxury play, Hengdeli (3389 HK), a leading retailer of international brand watches in China, is trading at 30. 5x PE for the current year with a 3-year EPS CAGR of 29. 5%. Comparing to these peers, Luk Fook’s growth potential looks under-appreciated. PEER GROUP COMPARISON ––––––––––PE –––––––––– T T+1 T+2 T+3 x x x x Ticker Company Mkt cap HK$bn Price HK$ Hist YE (T =) 3-yr EPS CAGR PEG x HK-based retail chain expanding actively in China with similar market cap as Luk Fook 116# 178* 999* 887* Average CHOW SANG SANG SA SA I. T EMPEROR WATCHES 13. 9 10. 8 8. 9 5. 9 —-8. 6 20. 55 7. 77 7. 7 1. 13 12/2009 3/2010 2/2010 12/2009 21. 6 28. 3 32. 5 26. 3 —–29. 0 N/A 24. 1 27. 9 25. 1 —–25. 7 N/A 19. 9 23. 0 15. 3 —–19. 4 N/A 16. 2 19. 2 11. 0 —–15. 4 N/A 20. 4% 19. 2% 33. 8% ——–24. 5% N/A 1. 18 1. 45 0. 74 —–1. 05 Other luxury retailers with purer exposure in China 3389* 589* 891* Average 590^ LUK FOOK HENGDELI PORTS DESIGN TRINITY 18. 2 11. 4 12. 5 —-14. 0 10. 1 4. 15 20. 15 7. 95 12/2009 12/2009 12/2009 44. 1 24. 3 53. 4 —–40. 6 19. 0 30. 5 22. 5 39. 6 —–30. 9 13. 9 25. 3 19. 2 28. 5 —–24. 3 11. 6 20. 3 15. 6 22. 3 —–19. 4 9. 8 29. 5% 15. 9% 33. % ——–26. 4% 24. 7% 1. 04 1. 42 1. 17 —–1. 17 0. 56 20. 55 3/2010 * Based on actual results and Bloomberg consensus ^ Based on actual results and our estimates # No estimates available Source: Bloomberg, South China Research Valuation – Despite its 98% share price rally since its better-than-expected FY10 results was reported in July 2010, we believe Luk Fook remains undervalued and its re-rating as a China consumer play is not yet complete. At its current share price, we believe the upside potential is high, while the downside risk is limited, as it is only trading at 13. 9x FY3/11 PE with a 24. % EPS CAGR for FY10-13. Our target price of HK$28. 10 (implying a potential upside of 37%) is based on our HK$1. 48 for FY3/11 EPS forecast and a target PE of 19. 0x, which 1) represents a ~25% discount off the average current-year PE of Sasa, I. T and Emperor Watches, 2) is equal to the historical PE of 19. 0x that Luk Fook is now trading at, and 3) implies a PEG of merely 0. 77x. Important: please refer to our disclosures and disclaimers at the end of this report. -6- LUK FOOK HOLDINGS (590 HK) POSITIVE INVESTMENT CONSIDERATIONS Brand equity Well-established HK jewellery brands enjoy a competitive edge mong mainland customers, who tend to trust HK’s brands Rising demand Continuing uptrend in mainland tourists visiting HK and Macau Rising affluence of Chinese to drive higher demand for gold and gem-set jewellery Increasing purchasing power of mainland tourists due to appreciating RMB High inflation expectations to prompt buying appetite for gold as store of value Expansion Licensing model allows fast expansion of retail network in second and third cities in mainland Management Track record shows excellent expansion execution Profit margin Unlike other consumer plays like F&B and apparel companies, higher raw material costs will not hurt gross margin Financials Strong operating cash flow with minimal capex requirements Strong balance sheet 40% dividend payout, the highest among HK-listed jewellery retailers Low PER in absolute terms, providing cushion on the downside Source: South China Research RISKS

Sharp correction in gold prices resulting in a lower gross margin Hard landing in Chinese and HK economy, leading to negative wealth effect and lower demand for jewellery Inflation pressure at HK raising operating costs Competition with other HK jewellery retailers Source: South China Research Important: please refer to our disclosures and disclaimers at the end of this report. -7- LUK FOOK HOLDINGS (590 HK) TURNOVER HK$m 6,000 5,000 4,000 3,000 OPERATING PROFIT HK$m 700 600 500 400 300 C AGR = 22. 4% C AGR = 33. 0% 2,000 1,000 FY05 FY06 FY07 FY08 FY09 FY10 200 100 0 FY05 FY06 FY07 FY08 FY09 FY10 Source: Company, South China Research Source: Company, South China Research NET PROFIT HK$m 600 500 400 300 200 100 0 FY05 FY06 FY07 FY08 FY09 FY10 HK$m 1800 1600 SHAREHOLDER’S FUNDS C AGR = 33. 4% 1400 1200 1000 800 600 400 200 0 FY05 FY06 C AGR = 20. % FY07 FY08 FY09 FY10 Source: Company, South China Research Source: Company, South China Research EARNINGS PER SHARE HK$ 1. 2 1. 0 0. 8 DIVIDEND PER SHARE HK$ 0. 5 C AGR = 32. 8% 0. 4 C AGR = 29. 1% 0. 3 0. 6 0. 2 0. 4 0. 2 FY05 FY06 FY07 FY08 FY09 FY10 0. 1 FY05 FY06 FY07 FY08 FY09 FY10 Source: Company, South China Research Source: Company, South China Research SHAREHOLDING STRUCTURE Mr. Wong Wai-sheung 51. 8% First State Investments 6. 9% Public 41. 3% Luk Fook Holdings (590 HK) Source: Bloomberg Important: please refer to our disclosures and disclaimers at the end of this report. -8- LUK FOOK HOLDINGS (590 HK) Consolidated Financial Summary

PROFIT FORECASTS Year ended 31 March Turnover by segments: Retailing – HK, Macau and overseas Retailing – China Wholesaling Licensing Turnover – total Results by segments: Retailing – HK, Macau and overseas Retailing – China Wholesaling Licensing Segment results – total Unallocated expenses, net Operating profit Finance expenses, net Associate Profit before tax Tax Minority interests Net profit Source: Company, South China Research 2009A HK$m 2,898. 2 177. 4 746. 1 137. 5 ——3,959. 2 190. 4 9. 0 73. 3 107. 9 ——380. 6 (44. 2) ——336. 4 (3. 6) 1. 2 ——334. 1 (37. 8) (3. 1) ——293. 2 ==== 2010A HK$m 3,801. 6 289. 2 1,122. 1 173. 5 ——5,386. 4 387. 9 39. 1 142. 9 107. 9 ——677. 8 (42. 7) ——635. 1 (3. 2) 2. 3 ——634. 3 (97. 5) (5. 1) ——531. 6 ==== 2011E HK$m 5,018 416 1,371 219 ——7,025 527 71 184 136 ——918 (47) ——870. 9 (5) 3 ——869. 4 (134) (7) ——729 ==== 2012E HK$m 5,696 505 1,632 271 ——8,103 598 93 233 167 ——1,091 (52) ——1,039. 4 – 4 ——1,043. 2 (160) (8) ——874 ==== 013E HK$m 6,379 607 1,931 326 ——9,243 670 121 289 200 ——1,281 (57) ——1,224. 0 – 5 ——1,228. 6 (189) (10) ——1,030 ==== KEY RATIOS Year ended 31 March Growth Turnover EBITDA Profit before tax Net profit EPS Margins EBITDA Profit before tax Net profit Ratios Effective tax rate Dividend payout Source: Company, South China Research 2009A % +17. 6 -7. 8 -10. 2 -6. 6 -6. 7 9. 4 8. 4 7. 4 11. 3 28. 6 2010A % +36. 0 +82. 1 +89. 9 +81. 3 +81. 3 12. 6 11. 8 9. 9 15. 4 39. 8 2011E % +30. 4 +39. 0 +37. 1 +37. 1 +37. 1 13. 4 12. 4 10. 4 15. 4 40. 0 2012E % +15. 3 +19. 0 +20. 0 +20. 0 +20. 0 13. 9 12. 9 10. 8 15. 4 40. 0 2013E % +14. 1 +17. 6 +17. 8 +17. 8 +17. 8 14. 3 13. 3 11. 1 15. 4 40. 0

Important: please refer to our disclosures and disclaimers at the end of this report. -9- LUK FOOK HOLDINGS (590 HK) South China Financial Holdings Ltd Tel: (852) 2820 6333 HONG KONG Head office Fax: (852) 2845 5765 URL: http://www. sctrade. com E-mail: [email protected] com Telex: 69208 SCSL Branches Unit C-D, G/F, Goldfield Tower 53-59 Wuhu Street, Hung Hom Tel: (852) 2330 5881 Fax: (852) 2627 0001 LONDON 5-6 Carlos Place, Mayfair, London W1K 3AP, United Kingdom Tel: (4420) 7491 9225 Fax: (4420) 7355 4423 26/F, Tower 1, Lippo Centre, 89 Queensway, Admiralty Tel: (852) 3196 6000 Fax: (852) 2536 4608 Shop 2 G/F, Max Share Centre, 373 King’s Road, North Point Tel: (852) 2570 4422 8/F, Bank of China Tower, 1 Garden Road Central Tel: (852) 2820 6333 Fax: (852) 2845 5765 Shop 1;2, G/F, Yue Man Centre, 300-302 Ngau Tau Kok Road, Kwun Tong Tel: (852) 2191 2822 Fax: (852) 2793 3000 Shop A1, G/F, Kar Ho Building, 27-31 Hong Lok Road, Yuen Long, N. T. Tel: (852) 2442 4398 Fax: (852) 2479 4418 G/F, 108 Chung On Street, Tsuen Wan N. T. Tel: (852) 2614 1775 Fax: (852) 2615 9427 DISCLOSURES: The Research Analyst(s) who prepared the research report hereby certify the views expressed in this research report accurately reflect the analyst(s) personal views about the subject companies and their securities. The Research Analyst(s) also certify the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the specific recommendations(s) or view(s) in this report.

We and our affiliates, officers, directors and employees, excluding Research Analyst(s), will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research report. IMPORTANT: This report and the information and opinions provided or expressed herein have been prepared by South China Research Limited for itself, its parent, holding, subsidiary, or other associated companies for the information of its or their respective clients only, and has been compiled with reasonable care using data, information, or sources believed to be true, reliable, and accurate at the time of publication. No representation or warranty whatsoever, whether express or implied, is made to the accuracy or completeness or otherwise of this report or any of the contents thereof.

South China Research Limited, its parent, holding, subsidiary or, other associated companies and its or their directors, officers, associates, representatives, or employees accordingly do not accept any responsibility or liability whatsoever for any direct or consequential loss or damage of whatsoever nature arising from or as a result of the use, publication, or distribution in whole or in part of this report or any of its contents. The information and opinions contained in this report are or may be subject to change or revision without any notice. South China Research Limited, its parent, holding, subsidiary, or other associated companies or its or their respective directors, officers, associates, representatives, or employees may have positions or otherwise be directly or indirectly interested in the securities mentioned in this report or may buy, sell, or deal or offer to buy, sell, or deal in or with such ecurities from time to time, whether as principal for its or their own account or as agent or in any other capacity for or on behalf of another person. This report is not, and is not intended to be, nor constitutes any offer or solicitation for the purchase or sale or other dealing in the securities mentioned herein. Copyright protection and other rights exist or subsist in this report, which may accordingly not be used for any other purpose, nor sold, distributed, published, or reproduced in any manner without the express consent of South China Research Limited. This publication is approved for distribution in the UK by South China Securities (UK) Ltd, a firm authorized and regulated by the FSA. Important: please refer to our disclosures and disclaimers at the end of this report. -10-